International rating agency Fitch Ratings has placed the 'A-' (A minus) Long-term, 'F1' Short-term and 'C' Individual ratings of Israel's Bank Hapoalim on Rating Watch Negative. The Support rating of '2' is unaffected by the Rating Watch.

Fitch’s rating action reflects expectations of poor results for the group in 2002, which caused it to issue a profit warning on March 20, 2003. Net income for 2002 is expected to be as low as 360 million new Israeli shekels (NIS), against NIS960 million the previous year, and a net loss of NIS400 million is expected for the last quarter.

The main reason for this sharp drop in profitability is the very high NIS3.3 billion specific provisioning charge for the year—of which NIS2 billion were written in the last quarter—against NIS1.3 billion in 2001.

This is due to the continued slowdown of the Israeli economy, which is now having a strong negative effect on certain large Israeli corporates to which the bank has exposure. This substantiates Fitch's ongoing concerns about the impact of the economic recession on Bank Hapoalim's asset quality and performance, keeping in mind that the group's capitalization is just above minimum regulatory requirements.

Fitch is awaiting the bank's full disclosure of its 2002 financials (planned for end-March) to decide on the precise impact this fall in profitability and deterioration of asset quality will have on the group's ratings. — (menareport.com)